PEOPLEAn estimated 27.9 million people lived in Venezuela as of 2008. The population is young, growing, and urbanized. The population growth rate is 1.6% per year, and roughly 50% of Venezuelans are under the age of 25. According to the 2001 census, almost 90% of the population lives in urban areas. Metropolitan Caracas, the country's largest city, has an estimated 3.2 million inhabitants. Venezuela is proud of its tradition as a melting pot, and the majority of its citizens have a mixed racial heritage of Caucasian, African, and American Indian elements.

HISTORY AND POLITICAL CONDITIONSAt the time of Spanish discovery, the indigenous in Venezuela were mainly agriculturists and hunters living in groups along the coast, the Andean mountain range, and the Orinoco River. The first permanent Spanish settlement in South America--Nuevo Toledo--was established in Venezuela in 1522. Venezuela was a relatively neglected colony in the 1500s and 1600s as the Spaniards focused on extracting gold and silver from other areas of the Americas.

Toward the end of the 18th century, the Venezuelans began to grow restive under colonial control. In 1821, after several unsuccessful uprisings, the country succeeded in achieving independence from Spain, under the leadership of its most famous son, Simon Bolivar. Venezuela, along with what are now Colombia, Panama, and Ecuador, was part of the Republic of Gran Colombia until 1830, when Venezuela separated and became a separate sovereign country.

Much of Venezuela's 19th-century history was characterized by periods of political instability, dictatorial rule, and revolutionary turbulence. The first half of the 20th century was marked by periods of authoritarianism--including dictatorships from 1908-35 and from 1950-58. In addition, the Venezuelan economy shifted after the First World War from a primarily agricultural orientation to an economy centered on petroleum production and export.

Since the overthrow of Gen. Marcos Perez Jimenez in 1958 and the military's withdrawal from direct involvement in national politics, Venezuela has enjoyed an unbroken tradition of civilian democratic rule. This earned Venezuela a reputation as one of the more stable democracies in Latin America. Until the 1998 elections, the Democratic Action (AD) and the Christian Democratic (COPEI) parties dominated the political environment at both the state and federal level.

The Caracazo And Popular DissatisfactionVenezuela's prevailing political calm came to an end in 1989, when Venezuela experienced riots in which more than 200 people were killed in Caracas. The so-called Caracazo was a response to an economic austerity program launched by then-President Carlos Andres Perez. Three years later, in February 1992, a group of army lieutenant colonels led by future President Hugo Chavez mounted an unsuccessful coup attempt, claiming that the events of 1989 showed that the political system no longer served the interests of the people. A second, equally unsuccessful coup attempt by other officers followed in November 1992. A year later, Congress impeached Perez on corruption charges.

Deep popular dissatisfaction with the traditional political parties, income disparities, and economic difficulties were some of the major frustrations expressed by Venezuelans following Perez's impeachment. In December 1998, Hugo Chavez Frias won the presidency on a campaign for broad reform, constitutional change, and a crackdown on corruption.

Constitutional Reforms Current President Hugo Chavez was elected in 1998 on a platform that called for the creation of a National Constituent Assembly in order to write a new constitution for Venezuela. Chavez's argument that the existing political system had become isolated from the people won broad acceptance, particularly among Venezuela's poorest classes, who had seen a significant decline in their living standards over the previous decade and a half. The National Constituent Assembly (ANC), consisting of 131 elected individuals, convened in August 1999 to begin rewriting the Constitution. In free elections, voters gave all but six seats to persons associated with the Chavez movement. Venezuelans approved the ANC's draft in a national referendum on December 15, 1999. The political system described below is that defined by the 1999 Constitution.

The president is elected by a plurality vote with direct and universal suffrage. The term of office is 6 years, and a president may be re-elected to a single consecutive term. The president appoints the vice president. He decides the size and composition of the cabinet and makes appointments to it with the involvement of the National Assembly. Legislation can be initiated by the executive branch, the legislative branch (either a committee of the National Assembly or three members of the latter), the judicial branch, the citizen branch (ombudsman, public prosecutor, and controller general) or a public petition signed by no fewer than 0.1% of registered voters. The president can ask the National Assembly to reconsider portions of laws he finds objectionable, but a simple majority of the Assembly can override these objections.

The National Assembly is unicameral, consisting solely of the Chamber of Deputies. Deputies serve 5-year terms, and may be re-elected for a maximum of two additional terms. These legislative agents are elected by a combination of party list and single member constituencies. When the Congress is not in session, a delegated committee acts on matters relating to the executive and in oversight functions. In December 2005 pro-government parties took all 167 seats in the National Assembly after opposition parties boycotted the election over concerns with electoral conditions.

The Constitution designates three additional branches of the federal government--the judicial, citizen, and electoral branches.

The judicial branch is headed by the Supreme Tribunal of Justice (TSJ), which may meet either in specialized chambers (of which there are six) or in plenary session. The justices are appointed by the National Assembly and serve 12-year terms. Under the 1999 Constitution, the Supreme Tribunal of Justice is composed of 20 justices. The 1999 Constitution was amended in 2004, and the total number of justices was expanded by 12 to a total of 32. In December 2004, the National Assembly selected new judges to fill the expansion. The judicial branch also consists of lower courts, including district courts, municipal courts, and courts of first instance.

The citizens branch consists of three components--the attorney general ("fiscal general"), the "defender of the people" or ombudsman, and the comptroller general. The holders of these offices, in addition to fulfilling their specific functions, also act collectively as the "Republican Moral Council" to challenge before the Supreme Tribunal of Justice actions they believe are illegal, particularly those which violate the Constitution. The holders of the "citizen power" offices are selected for terms of 7 years by the National Assembly.

The "Electoral Power," otherwise known as the National Electoral Council (Consejo Nacional Electoral or CNE), is responsible for organizing elections at all levels. Its five members are also elected to 7-year terms by the National Assembly. In the event of a hung vote in the National Assembly, the Supreme Tribunal of Justice can be called on to appoint the members.

Political Turmoil In July 2000, following a long and controversial process, voters re-elected President Hugo Chavez of the Fifth Republic Movement (MVR) in generally free and fair national and local elections. The MVR and pro-Chavez Movimiento a Socialismo (MAS) party won 92 seats in the 165-member legislature. Subsequent party splits reduced the pro-Chavez members to 84 seats. In April 2002, the country experienced a temporary alteration of constitutional order. When an estimated 400,000 to 600,000 persons participated in a march in downtown Caracas to demand President Chavez' resignation, gunfire broke out, resulting in as many as 18 deaths and more than 100 injuries on both sides. Military officers took President Chavez into custody, and business leader Pedro Carmona swore himself in as interim President. On April 14, military troops loyal to Chavez returned him to power. A national reconciliation process, with participation by the Organization of American States, the UN Development Program, and the Carter Center, was unsuccessful in stopping further conflict. Opposition leaders called a national work stoppage on December 2, 2002. Strikers protested the government and called for the resignation of President Chavez. The oil sector joined other sectors of the economy and effectively shut down all economic activity for a month. The OAS Permanent Council passed Resolution 833 on December 16, 2002, calling for a "constitutional, democratic, peaceful, and electoral solution" to the crisis in Venezuela. The strike formally ended in February 2003 as political opponents of Chavez sought a recall referendum to revoke the mandate of the president.

The Referendum Process In September 2003, after an impasse in the National Assembly, the Supreme Court named a new board of directors for the National Electoral Council (CNE). After months of intense deliberations that included two conflictive signature drives overseen by the CNE, political riots over the government's disqualification of questionable signatures, and the intervention of international electoral observers, the CNE certified the opposition's results and set the date of the recall referendum for August 15, 2004. According to the CNE, President Chavez won 59% of the vote. His opponents immediately contested that the results of the referendum were marked by electoral fraud. However, international electoral observation missions carried out by the Organization of American States and the Carter Center found no indication of systemic fraud.

From Referendum To Elections In the wake of the referendum victory, Pro-Chávez candidates continued to sweep other electoral contests. Chávez supporters won 20 out of the total 22 state governor positions up for election in October 2004 (there are currently two opposition governors). Chavez supporters also won a majority of the seats in the August 2005 municipal council (parroquias) elections. Pro-Chávez parties won all 167 seats in the December 2005 National Assembly elections, after most opposition candidates withdrew one week before the elections over voter secrecy concerns. The final reports of the EU and OAS observer missions to the 2005 legislative elections, which were marked by record-high abstention, noted high levels of distrust in electoral institutions. The reports made specific recommendations to increase transparency and help voters regain the confidence necessary for participation. Most of the recommendations were not implemented. As a signatory of the Inter-American Democratic Charter, Venezuela has an obligation to hold "periodic, free, and fair elections based on secret balloting and universal suffrage."

A New Term and New Administration President Chávez was re-elected by an overwhelming majority (63%) in the December 3, 2006, presidential elections. He defeated Zulia Governor Manuel Rosales, whose Un Nuevo Tiempo (UNT) party formed an alliance with several key opposition parties. Though international observers found no evidence of fraud on election day, they did note concerns over abuse of government resources used to support the Chávez campaign, voter intimidation tactics, and manipulation of the electoral registry.

In January 2007, President Chávez named a new Vice President (the former head of the CNE) and cabinet, drawing largely from deputies of the National Assembly. Chávez announced a renewed effort to implement his vision of "21st Century Socialism" in Venezuela. He asked the National Assembly to grant him special constitutional powers via an "enabling law" to rule by decree over a broad range of society and subsequently received those powers for a term of 18 months. He also took major steps to nationalize the telecommunications and electricity sectors, as well as to finalize a majority government share in many oil projects, all sectors with significant foreign investments.

On August 15, 2007, President Chávez proposed a package of reforms to his own 1999 Constitution, including measures that would have allowed indefinite presidential re-election, a reorganization of the geographic boundaries of government, and a redefinition of private property. On December 2, 2007, the proposed reforms were narrowly defeated in a public referendum after student groups, traditional opposition leaders, and former Chávez allies urged Venezuelans to reject the package. The vote was the first electoral loss for President Chávez since he assumed office and was viewed by many as a rebuke of his efforts to consolidate greater power in the executive office. President Chavez has since signaled his intent to pass many of the changes defeated in the referendum by presidential decree.

Gubernatorial and mayoral elections are scheduled to be held in November 2008.

Principal Government OfficialsPresident--Hugo CHÁVEZ FriasVice President--Jorge RODRÍGUEZ GómezMinister of Foreign Affairs--Nicolas MADURO MoroMinister of Defense-General Gustavo Reyes RANGEL BriceñoAmbassador to the United States--Bernardo ÁLVAREZ HerreraAmbassador to the Organization of American States--Jorge VALERO Briceño Ambassador to the United Nations--Francisco ARIAS Cardenas

The Venezuelan embassy in the United States is located at 1099 30th St. NW, Washington, DC 20007 (tel. (202) 342-2214). In addition to Washington, DC, Venezuela maintains consulates in Boston, Chicago, Houston, Miami, New Orleans, New York, San Francisco, and Puerto Rico.

ECONOMYReal GDP increased by 8.3% in 2007. The economy recovered strongly in 2004 (18.3%), 2005 (10.3%), and 2006 (10.3%) after two consecutive years of deep economic recession (in 2003, Venezuelan GDP contracted 7.8%, after contracting 8.9% in 2002). The economic recovery has been driven by a large increase in government expenditures, based on an oil windfall, which in turn generated higher consumption levels.

The Consumer Price Index increased 18.7% in 2007, following increases of 13.7% in 2006, 16.0% in 2005, and 21.7% in 2004. Early monthly statistics suggest that annual inflation could be as high as 30% in 2008.

All foreign exchange requests must be approved by the National Exchange Control Administration (CADIVI), and the Central Bank (BCV) completes all legal purchase and sale of foreign currency. In January 2008, the Venezuelan Government adopted the "bolívar fuerte" as its new currency, effectively redenominating the previous currency, the "bolívar," by removing three zeroes (1 bolivar fuerte=1,000 bolívars). The current exchange control regime rate for U.S. dollar exchange is Bs.F. 2.145=U.S. $1.00. Unofficial exchange rates are far higher.

Central Bank-held international reserves increased to over U.S. $36 billion at the end of 2006. The reserves would have been higher, but the BCV transferred $6 billion to the National Development Fund (FONDEN) during the last quarter 2005, as directed by the Central Bank Law (July 2005) and an additional $4.3 billion in 2006.

The Venezuelan Government dominates the economy. The state oil company, PDVSA, controls the petroleum sector. Government companies control the electricity sector and important parts of the telecommunications and media sectors. In the spring of 2008, the government announced the nationalization of cement and steel producers, as well as select companies in the milk and meat distribution sectors. These and previous nationalizations, as well as other threats to property rights and an uncertain macroeconomic environment characterized by high inflation and foreign exchange controls, have led to reduced space for the private sector and low levels of private investment.

There is considerable income inequality. The Gini coefficient was 0.42 during 2007. According to government statistics, the percentages of poor and extremely poor among Venezuelan population were 27.5% and 7.6%, respectively, for the first half of 2007.

Although economic growth has been impressive, as a result of the oil windfall, many in the Venezuelan business community remain very concerned about President Chavez' vision for "21st Century Socialism" and what it portends for the private sector.

Petroleum and Other ResourcesEconomic prospects remain highly dependent on oil prices and the export of petroleum. In 2005, the oil sector accounted for more than 25% of GDP, 90% of export earnings, and more than half of the central government's ordinary revenues. Venezuela remains the fourth-leading supplier of imported crude and refined petroleum products to the United States. The Venezuelan Government has sought more income from the petroleum sector. The first example was a unilateral decision in late 2004 to increase the royalty rate on production from the Orinoco heavy crude "strategic associations" with international oil companies from 1% to 16.67%.

In the 1990s, the Government of Venezuela opened up much of the hydrocarbon sector to foreign investment, promoting multi-billion dollar investment in heavy oil production, reactivation of old fields, and investment in several petrochemical joint ventures. By the late 1990s almost 60 foreign companies representing 14 different countries participated in one or more aspects of Venezuela's oil sector. On November 13, 2001, under an enabling law authorized by the National Assembly, President Chavez enacted a new Hydrocarbons Law, which came into effect in January 2002. This law replaced the Hydrocarbons Law of 1943 and the Nationalization Law of 1975. Among other things, the new law provided that all oil production and distribution activities would be the domain of the Venezuelan state, with the exception of the joint ventures targeting extra-heavy crude oil production. Under the new law, private investors cannot own 50% or more of the capital stock in joint ventures involved in upstream activities. The new law also provided that private investors could own up to 100% of the capital stock in downstream ventures. A Gaseous Hydrocarbons law promulgated earlier by the Chávez government also allowed substantial participation by private investors with respect to gas production ventures.

During the December 2002-February 2003 general strike, petroleum production and refining by PDVSA, the state-owned oil company, almost ceased. Despite the strike, these activities eventually were substantially restarted. Out of a total workforce of 45,000, over 20,000 PDVSA management and workers were subsequently dismissed because the government asserted they had abandoned their jobs during the strike. Current levels of production remain a subject of debate, with considerable difference between the levels cited by the Venezuelan Government and those cited by private sector and international observers.

In early 2005, the government informed companies with operating service contracts for mature fields that they must migrate the contracts to joint ventures that conform to the 2001 Hydrocarbons Law. The government threatened to seize fields operating under the services contracts on December 31, 2005 if oil companies did not sign transition agreements to migrate their contracts. All but three companies ultimately signed joint venture agreements with the government. One company was bought out by its partner while the fields operated by two other companies were ultimately taken over by the government. One of these disputes was handled by negotiation while another company decided to take its case to international arbitration. In early 2007, President Chávez announced that the Venezuelan Government would take a majority government share in the remaining foreign investments in the oil sector, including the four heavy-oil "strategic associations." Several international oil companies agreed to migrate their interests to joint ventures with majority government ownership. Two U.S. companies decided to pull out of Venezuela--one is still in negotiations over compensation while the other has announced that it will seek international arbitration.

Trade, Manufacturing and AgricultureDespite political tensions between the U.S. and Venezuela, the U.S. remains Venezuela's most important trading partner. In 2007, bilateral trade topped U.S. $50 billion. Venezuelan exports to the U.S. were U.S. $40 billion (accounting for at least 60% of total Venezuelan exports), and U.S. exports to Venezuela were $10 billion (or 22% of total Venezuelan imports). The U.S. is the single most important customer for Venezuelan oil. Venezuela shipped an average of approximately 1.4 million barrels of crude oil and petroleum products per day to the U.S. in 2007, a figure which accounts for at least half of Venezuelan oil exports and 10% of U.S. oil imports.

The Government of Venezuela has taken a vocal role against the proposed Free Trade Agreement of the Americas (FTAA). Its stated goal is to expand its Bolivarian Alternative for the Americas (ALBA) project and develop a South American bloc (see Foreign Relations).

Manufacturing contributed an estimated 17% of GDP in 2006. The manufacturing sector continued its recovery started in 2004, but remained hindered by a marked lack of private investment. Venezuela manufactures and exports steel, aluminum, textiles, apparel, beverages, and foodstuffs. It produces cement, tires, paper, fertilizer, and assembles cars both for domestic and export markets.

Agriculture accounts for approximately 4% of GDP, 10% of the labor force, and at least one-fourth of Venezuela's land area. Venezuela exports rice, cigarettes, fish, tropical fruits, coffee, cocoa, and manufactured products. The country is not self-sufficient in most areas of agriculture. Venezuela imports about two-thirds of its food needs. Through November 2006, U.S. firms exported $412 million worth of agricultural products, including wheat, corn, soybeans, soybean meal, cotton, animal fats, vegetable oils, and other items to make Venezuela one of the top two U.S. markets in South America. The United States supplies roughly one-quarter of Venezuela's food imports.

Labor and Infrastructure Official unemployment statistics registered 10.2% unemployment in January 2008. Unofficial estimates are significantly higher. The public sector employs about 13% of the work force, while less than 1% work in the capital-intensive oil industry. About 18% of the labor force is unionized, and unions are particularly strong in the petroleum and public sectors. The "informal" sector accounts for some 45% of the work force, or 5.5 million people.

Labor unions allege the government repeatedly violates International Labor Organization (ILO) agreements on freedom of association and the right to organize and bargain collectively. Specifically, the Constitution and laws permit undue influence in the internal elections of unions. The government has told the ILO it will correct the problem; draft legislation remains pending in the National Assembly.

Venezuela has an extensive road system. With the exception of air service, transportation has failed to keep pace with the country's needs. Much of the infrastructure suffers from inadequate maintenance. Caracas has a modern subway but only one functioning rail line serves the rest of the country.

FOREIGN RELATIONSPresident Chávez has promoted his "Bolivarian Revolution" as a model for other countries to follow. The policy calls for the establishment of a "multi-polar" world devoid of U.S. influence and for greater integration among developing countries. Venezuela is currently advocating regional integration through its PetroCaribe and PetroSur petroleum initiatives, the creation of a South American Community of Nations, and the establishment of the Bolivarian Alternative for the Americas (a social integration project proposed by President Chavez as an alternative to the Free Trade Area of the Americas). In April 2006, President Chávez announced he was withdrawing Venezuela from the Andean Community trade bloc. In July 2006, Venezuela officially joined the Southern Common Market, MERCOSUR. Before it can become a full member of MERCOSUR, Venezuela must conform to the trade bloc's economic regulations. Congressional approval by Brazil and Paraguay is also still outstanding. The Venezuelan Government maintains very close relations with Cuba and advocates an end to Cuba's isolation.

Since 2005, President Chávez has deepened relations with Iran, a state sponsor of terrorism, by signing multiple economic and social accords and publicly supporting Iran's controversial nuclear program. President Chávez has also reached out to North Korea, Belarus, and Syria. The Venezuelans have also embarked on a worldwide effort to increase their presence in embassies overseas in Africa and Asia.

President Chávez has also launched a major renovation of the Venezuelan Armed Forces by purchasing new advanced weaponry. In 2005-2006, Venezuela purchased 100,000 AK-103 rifles from Russia and signed an agreement to construct a rifle and ammunition complex. Venezuela has also purchased Russian Mi-24 HIND attack and Mi-26 transport helicopters, and has begun receiving 24 Russian Sukhoi Su-30 fighters. In 2007-2008 Venezuela signed agreements for Mi-28 Havok attack helicopters, IL-76 heavy lift aircraft, an integrated air defense missile systems from Belarus, four KILO class diesel submarines, and Chinese K-8 jet trainers.

Venezuela has longstanding border disputes with Colombia and Guyana, but seeks in general to resolve them peacefully. Bilateral commissions have been established by Venezuela and Colombia to address a range of pending issues, including resolution of the maritime boundary in the Gulf of Venezuela. Relations with Guyana are complicated by Venezuela's claim to roughly three-quarters of Guyana's territory. Since 1987, the two countries have held exchanges on the boundary under the "good offices" of the United Nations.

U.S.-VENEZUELAN RELATIONSU.S.-Venezuelan relations have been tense in recent years. President Hugo Chávez has continuously defined himself in opposition to the United States, using incendiary rhetoric to insult President Bush and senior administration officials. For example, in his September 2006 speech to the UN General Assembly, President Chávez called President Bush "the Devil" and other offensive names. The United States continues to seek constructive engagement with the Venezuelan Government, focusing on areas of technical cooperation. Major U.S. interests in Venezuela include promotion of U.S. exports and protection of U.S. investment, preservation of Venezuela's constitutional democracy, closer counter-narcotics cooperation, more vigorous efforts on counterterrorism, and continued access to petroleum.

U.S.-Venezuelan commercial ties are deep. The United States is Venezuela's most important trading partner, representing about 22% of imports and approximately 60% of Venezuelan exports. In turn, Venezuela is the United States' third-largest export market in Latin America, purchasing U.S. machinery, transportation equipment, agricultural commodities, and auto parts. Venezuela's opening of its petroleum sector to foreign investment in 1996 created extensive trade and investment opportunities for U.S. companies. As a result, Venezuela is one of the top four suppliers of foreign oil to the United States. The Department of State is committed to promoting the interests of U.S. companies in overseas markets. For contact information and a list of government publications, please go to the end of this document.

Venezuela is a minor source country for opium poppy and coca but a major transit country for cocaine and heroin. Money laundering and judicial corruption are major concerns. In 2004 and early 2005, counternarcotics cooperation between the U.S. and Venezuela deteriorated significantly. In March 2005, the Venezuelan National Guard removed its highly experienced members from the U.S.-supported Prosecutor's Drug Task Force. In August 2005, the Government of Venezuela accused the U.S. Drug Enforcement Administration (DEA) of espionage and terminated cooperation with the DEA pending negotiation of a new cooperation agreement, which had gone unsigned as of October 2006. President Bush decertified Venezuela on counternarcotics cooperation in 2005, 2006, and 2007.

In June 2006, Venezuela was listed at Tier 3 status in the State Department's Report on Trafficking in Persons. Tier 3 status indicates a perceived lack of effort to combat human trafficking.

In May 2006, the Secretary of State certified that Venezuela was not fully cooperating with U.S. counter-terrorism efforts. As of October 1, 2006, the United States Government has prohibited arms sales and services to Venezuela.

Approximately 23,000 U.S. citizens living in Venezuela have registered with the U.S. embassy, an estimated three-quarters of them residing in the Caracas area. An estimated 12,000 U.S. tourists visit Venezuela annually. About 500 U.S. companies are represented in the country.